Article

UCP 600 article 1

Where clauses in a credit from an issuing bank indicated that documents must be correct on first presentation, that the negotiating bank must certify that the documents were correct and that documents must be in conformity with the L/C prior to reimbursement

Query [TA 677rev]

We received two troubling reports of letters of credit issued by some Country I banks containing clauses to the effect that:

1. "Documents must be correct on first presentation. Correction of documents is not permitted."

2. "Negotiating bank must certify that documents were correct on first presentation."

3. "Provided documents on first presentation [are] in strict conformity with the L/C terms, you are authorized to reimburse yourselves with ...".

It appears the issuing bank is attempting to prohibit the beneficiary from correcting any discrepancies in their documents and representing them.

Our national committee believes the use of these or similar clauses to be bad practice and beyond the authority of the issuing bank. Some of our banks have stated their intent to refuse to advise credits containing these or similar clauses.

Are we correct that such clauses are beyond the authority of the issuing bank and without effect on the beneficiary or any nominated bank?

National committee analysis

The documents are the property of the presenter (presumably the beneficiary or a party presenting on its behalf) until they are honoured. The documents may be withdrawn by the presenter and corrected and represented until such time as they are honoured or otherwise disposed of in accordance with the presenter's instructions.

Whilst UCP 600 article 1 permits issuers to vary the rules, the above clauses are beyond the authority of the issuing bank. Such clauses would fundamentally alter the obligations of the issuer and the rights of the beneficiary and place an inappropriate burden on the nominated bank.

National committee conclusion

The use of such clauses, or similar, are considered bad practice for the reasons stated. Banks are discouraged from placing such clauses in their credits. Notwithstanding the content of article 1, an issuing bank has no authority over the documents until such time as they are honoured. Such clauses are without effect.

Banking Commission analysis

It is not for an issuing bank to dictate what a beneficiary or other presenter may or may not do in order to achieve a complying presentation. In the normal course of events, it is within the rights of a presenter to request the return of discrepant documents and have them corrected, where possible. It is also its right to replace discrepant documents with corrected ones. Until the documents are honoured or negotiated, they remain the property of the presenter.

It is also not for the issuing bank to request such certificates from the nominated bank in order that reimbursement be effected for any honour or negotiation that has transpired.

Final conclusion

The analysis and conclusion of the national committee is partially agreed. A condition in a credit indicating that documents may not bear any corrections is one that the beneficiary would have to abide by, unless the credit was subsequently amended to remove the condition, and a nominated bank would be required to refuse documents that contained any corrections.

The other clauses specified in the query represent bad practice, and issuing banks should refrain from including such terms and conditions in their credit.

UCP 600 sub-article 7 (c); sub-articles 2 (b) and (c)

Do all of the rights and protections of UCP 600 continue to prevail for all parties to a transaction once an extension to the maturity date has occurred as they do with the original acceptance/deferred payment? Is the answer different for an acceptance credit versus a deferred payment credit?

Query [TA 674rev]

On behalf of our ICC national committee, we request that the following query about UCP 600 be considered by the Commission.

Occasionally, issuing banks extend the maturity date of accepted drafts (or bills of exchange) or deferred payment letters of credit when all of the parties to the letter of credit (nominated and/or confirming bank, issuing/accepting bank, importer and exporter) have agreed to the extension. UCP is silent with respect to such extensions.

Our question is: do all of the rights and protections of UCP 600 continue to prevail for all parties to the transaction once an extension to the maturity date has occurred, as they did with the original acceptance/deferred payment? Is the answer different for an acceptance credit versus a deferred payment credit?

For clarity, the scenario under consideration is one in which the extension arises from payment term renegotiations between the exporter and the importer and NOT as a result of an issuing bank's request to refinance the letter of credit. It is recognized that the latter would constitute a bilateral financial agreement between the issuing and nominated banks.

As an example: an issuing/accepting bank contacts the nominated bank with a request to extend the maturity date of an accepted draft from 1st November to 1st December, indicating that the importer (its customer) and exporter (the nominated bank's customer) have agreed to the extension. The nominated bank contacts its client (exporter) who indicates agreement to the extension. The nominated bank agrees to the extension and communicates this to the issuing/accepting bank. In other cases, the request to the nominated bank may come directly from its client (exporter).

Essentially, therefore, we are enquiring about situations in which the extension is requested from the confirming bank after the documents have been presented (i.e., in the middle of the payment term allowed in the letter of credit, or shortly before the payment date) or, in those cases where the draft is drawn on the confirming bank and it has accepted it, and again the extension request is presented to the confirming bank after acceptance but prior to the payment date.

Analysis

Sub-article 7 (c) of UCP 600 states: "An issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity. An issuing bank's undertaking to reimburse a nominated bank is independent of the issuing bank's undertaking to the beneficiary."

Conclusion

Whether a replacement draft or new deferred payment undertaking is required will be determined by local law at the place of acceptance or where the deferred payment undertaking is incurred.

If the issuing bank, confirming bank and any bona fide holder other than the confirming bank agree to the payment term renegotiations that have been determined by the applicant and the beneficiary, and no replacement draft or deferred payment undertaking is necessary:

- the draft must be re-accepted to mature on the new agreed maturity date (when the credit is available by acceptance with the confirming bank); or

- a new or amended deferred payment undertaking must be incurred to reflect the new agreed maturity date (when the credit is available by deferred payment with the confirming bank).

By complying with the above, and in line with the definition of "honour" in article 2, i.e.,

"b. to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment"; and

"c. to accept a bill of exchange ('draft') drawn by the beneficiary and pay at maturity if the credit is available by acceptance", the obligation of the issuing bank to reimburse the nominated (confirming) bank, according to sub-article 7 (c), extends to the new agreed maturity date.

UCP 600 sub-articles 14 (e), 20 (a) (ii)

Is a description of the goods required to appear on a bill of lading?

Query [TA 681rev]

Is a description of the goods required to appear on the bill of lading? [Company C] Container Shipping Lines issue bills of lading with a pre-printed clause in the "Received for Shipment" area with the following statement regarding the description of the goods: "Which description the carrier has no reasonable means of checking and is not part of the BL" [emphasis added].

As this states that the description of the goods is not part of the bill of lading, is this document acceptable:

1. if there is no description contained in this area?

2. if the description appears to be in conflict with the description in other stipulated documents?

National committee analysis

UCP 600 sub-article 14 (e) states: "In documents other than the commercial invoice, the description of the goods, services or performance, if stated, may be in general terms not conflicting with their description in the credit."

UCP 600 sub-article 20 (a) (ii) contains a requirement that the bill of lading "indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit".

National committee conclusion

A description of the goods must appear on a bill of lading subject to article 20. The description may be in general terms not in conflict with the description in the credit.

Banking Commission analysis

It is general shipping practice that the carrier will not take responsibility for the description of goods shown on the bill of lading. Wording such as "said to contain", "shippers load and count", "particulars furnished by the shipper, carrier not responsible" or similar, are common features of bills of lading. The term and condition, "Which description the carrier has no reasonable means of checking and is not part of the BL", is a similar form of wording.

Although sub-article 20 (a) (ii) includes the wording: "indicate that the goods have been shipped on board ...", this does not imply that a description of goods is to appear.

Conclusion

The UCP does not require a goods description to appear on any document other than the invoice (sub-article 14 (e) refers). However, it is transport industry practice that a form of description will appear, and that description should not conflict with the description in the credit.

The wording quoted on the bill of lading i.e., "and is not part of the BL" is similar to terms quoted in article 26, i.e., "shipper's load and count" and "said by shipper to contain".

UCP 600 sub-article 20 (a) (ii)

Where a bill of lading evidences an inland place of receipt, will the B/L require a dated on board notation bearing the name of the vessel and port of loading stated in the credit, even if the bill of lading is pre-printed "shipped on board in apparent good order and condition ... " or similar?

Query [TA 679rev]

The credit requires a port-to-port shipment and [Company C] Shipping Container Lines issues its bills of lading with a pre-printed clause stating: "When the place of receipt of the goods is an inland point and is so named herein, any notation of 'on board', 'shipped on board' or words to like effect on this B/L, shall be deemed to mean on board the truck, trail car, aircraft or other inland conveyance ... from the place of receipt of the goods to the port of loading".

Is a separate on board notation required under this bill of lading?

National committee analysis and conclusion

When a credit requires presentation of a transport document covering a port-to-port movement, bills of lading containing this or similar clauses require a separate on board notation with the vessel name and date and port of loading, and this notation prevails over the pre-printed clause. This is consistent with ICC Opinions TA 635rev (query 3), TA 665rev and TA 667rev.

Banking Commission analysis

The analysis of the Opinions referred to above includes the following wording:

"A bill of lading is a generic term for a transport document that includes, but is not necessarily limited to, transport by sea from a port of loading to a port of discharge. It is recognized, however, that there will still be occasions when the shipping company or its agent will include reference to a place of receipt or taking in charge that is different from the port of loading. To cover this eventuality, the content of sub-article 20 (a) (ii) reads: 'indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit by '. The emphasis in this condition is that the document checker must be able to determine that the bill of lading appears to indicate that the shipped on board statement (pre-printed wording or by a separate notation) relates to loading on board the named vessel at the port of loading stated in the credit and not to any pre-carriage of the goods between a place of receipt or taking in charge and the port of loading. Unless it is evident from the bill of lading that the shipped on board statement applies to the vessel and the port of loading, the bill of lading will require an on board notation showing the port of loading and the name of the vessel, even if the goods are loaded on the vessel named in the bill of lading."

For this bill of lading, if there is an inland place of receipt shown, it is evident that any on board notation is not in respect of the named vessel that is leaving the stated port of loading.

Final conclusion

The analysis and conclusion of the national committee is agreed subject to the following: if the bill of lading evidences an inland place of receipt, the bill of lading will require a dated on board notation bearing the name of the vessel and port of loading stated in the credit, even if the bill of lading is pre-printed "shipped on board in apparent good order and condition ..." or similar